IRISH TAKEOVER PANEL CONSULTATION PAPER DISCLOSURE OF DEALINGS AND INTERESTS IN DERIVATIVES AND OPTIONS PROPOSALS TO AMEND THE TAKEOVER RULES

Transcription

1 IRISH TAKEOVER PANEL CONSULTATION PAPER DISCLOSURE OF DEALINGS AND INTERESTS IN DERIVATIVES AND OPTIONS PROPOSALS TO AMEND THE TAKEOVER RULES 30 July 2008

2 Contents Page A. Introduction 4 B. Amendments to Part A of the Rules 7 1. Definitions in Rules 2.1 and Dealing Derivative Interest and Interested Recognised Intermediary Relevant Securities Regulatory Information Service Associate Rule Interests in Relevant Securities Long Position Short Position Interests of Two or More Persons Proxies and Corporate Representatives Security Interests Gross Interests Number of Relevant Securities Concerned New Shares Acquisitions of Interests in Relevant 15 Securities C. Amendments to Part B of the Rules Rule 2.5 Announcement of a Firm Intention to Make an Offer 16 Contents of the Announcement Mode of Announcement Rule 2.10 Announcement of Numbers of Relevant Securities in Issue 17 2

3 Annexes 3.1 Obligation to Announce Options to Subscribe Treasury Shares Rule 4 Restrictions on Dealings in Securities Rule 8 Disclosures Rule 8.1 and 8.2 Dealings by Parties and by Associates Rule 8.3 Dealings by Persons with Interests in Relevant 20 Securities Representing 1% or More Disclosure Obligation Timing for Determination of the Interest Concert Parties/Discretionary Managers Recognised Intermediaries Duplication Rule 8.4 Timing of Disclosure Method of Disclosure Rule 8.6 Details to be Included in Disclosures Basic Informational Requirements Separate but Related Dealings Disclosure under Other Legislation Rule 8.9 Dealings not Required to be Disclosed Rule 9 Mandatory Offer Rule 16 Special Arrangements with Favourable Terms Rule 17.1 Announcement of Acceptance Levels Rules 24 and 25 - Offeror Documents and Offeree Documents Rule 38.5 Disclosure of Dealings by Connected Exempt Market-Makers Miscellaneous 32 Annexe 1 Proposed New Rules including New Disclosure Forms 33 Annexe 2 - Proposed New Notes 67 3

4 A. Introduction It has emerged in recent years that derivative positions are increasingly being taken by potential offerors, and by speculators such as hedge funds, in respect of offeree securities prior to the announcement of, or during, a takeover. The Panel believes that the Irish Takeover Panel Act, 1997, Takeovers Rules, 2007 ( Rules ) should be amended to take account of this development and to ensure that takeovers and other relevant transactions are conducted in accordance with the General Principles set out in the Schedule to the Irish Takeover Panel Act, 1997 ( Act ). It is not proposed to amend the Irish Takeover Panel Act, 1997, Substantial Acquisition Rules, 2007, at this time. Where derivatives and options give rise to the holding, whether directly or indirectly, of securities conferring not less than 30% of the voting rights in a relevant company there are currently Rule 9 implications and a mandatory bid obligation may arise. However, the disclosure regime applicable to dealings in, and holdings of, options and derivatives is limited. While derivatives fall within the definition of relevant securities in Rule 8.9 and thus are required to be disclosed during an offer period pursuant to Rules 8.1 and 8.2, the definition of derivative excludes products which do not include the possibility of delivery of the underlying securities. Furthermore, options and derivatives, as defined, are exempt from the calculation of the 1% ownership or control of a class of relevant securities for the purposes of Rule 8.3 disclosure. Elsewhere in the Rules, there is only limited disclosure of options and derivatives in the announcement of a firm intention to make an offer, the offer document, and the offeree board circular. The most common form of derivative instrument in the market is a contract for differences ( CFD ). A CFD is a contract under which a person ( investor ) benefits from an increase (a long CFD) or a decrease (a short CFD) in the underlying share price of a security from the reference price agreed at the time the contract is executed. CFDs are normally written by an investment bank or securities firm ( counterparty ) who will usually seek to hedge their position by acquiring (in the case of a long position) or selling short (in the case of a short position) a corresponding number of the underlying securities. This hedging means that the price of the underlying securities is influenced by dealing in the derivatives. A CFD contract does not give the investor ownership of the referenced shares or, usually, any control over the voting rights of those shares. Nor, since the contract is normally cash-settled, does it create any right to take delivery of the shares in place of cash settlement. However, market practice indicates that where the counterparty acquires securities to hedge a long CFD, it will often exercise the voting rights attaching to those securities in accordance with the wishes of the investor. Subsequently, when the investor closes out the contract, which he or she may do at any stage in an open-ended contract, the counterparty eliminates its exposure by selling any shares acquired (in the case of a long position) or acquiring shares to fill its position (in the case of a short position). This again influences the price of the underlying securities. In addition, when the long investor closes out the contract, he or she has an expectation that if he or she wishes to acquire the underlying shares the counterparty is likely to deliver the shares to him or her. It is the Panel s understanding that where the counterparty has not had to acquire the shares (for example because an offsetting short CFD exists), that the investor has an expectation that the counterparty will acquire the relevant shares and deliver them to him or her. It is clear therefore that, although the investor in a CFD possesses only an economic interest in the movement of the price of the underlying securities, he or she is able in 4

5 practice to exercise a significant degree of control over the securities held by the counterparty to hedge its position. Furthermore, the Panel is aware that on occasion long CFD investors have sought to influence the course of a bid by, for example, putting pressure on offeree boards to accept or reject an offer or by entering commitments to request physical settlement of the CFDs and to assent to the offer all securities obtained as a result of the settlement process. Dealings in other forms of derivatives such as options and spread bets can also have a similar effect on the price of the underlying securities. An option, for example gives the purchaser of the option a right to buy or sell a specified number of securities at a fixed price. As with a CFD, the counterparty to a call option will normally hedge its exposure by acquiring the securities in the market. This may afford the purchaser of the option de facto control over the securities and influence over the outcome of a takeover similar to that of the CFD holder. The Panel is proposing to introduce a more expansive disclosure regime which will increase the requirements to disclose dealings in derivatives referenced to, and options in respect of, relevant securities. Such a regime would recognise the potential de facto control and influence exercised by persons with long derivative or option positions. It would also facilitate market transparency and, in particular, allow market participants to understand the reasons why the prices of offeror or offeree company securities may be increasing or decreasing. The disclosure requirements in Rule 8 currently involve disclosure of dealings (which term is not defined) in relevant securities (as defined in Rule 8.9) by certain parties to a takeover. Persons who own or control 1% or more of any class of relevant securities must also disclose their dealings. Elsewhere, the Rules generally require disclosure of holdings of securities. It is proposed to make a number of substantial changes to Part A of the Rules, including the introduction of a definition of dealing and the concept of interest in a relevant security and the amendment of the definition of relevant securities. Interest in a relevant security will replace owns or controls for the purposes of Rule 8 and will replace holds in the context of disclosure of holdings in Rules 2.3, 4, 8, 16, 17.1(b), 20.1, 24 and As noted below, the term will include not just ownership or control of the relevant securities but all instances in which a person may be said to have a long position in the security. Therefore, if a person will benefit economically from an increase in the price of the security or suffer from a decrease in its price, disclosure may be required. The overall effect of the changes proposed will be to broaden significantly the range of transactions and interests which are disclosed to the market during an offer period. It should be noted that the Rule amendments proposed in this paper relate primarily to disclosure issues under the Rules. Specifically, the amendments do not affect persons whose interests (together with the interests of persons acting in concert with them) fall into the 30% to 50% category, i.e. control issues which arise, for example, under Rules 5 and 9. The Panel will consider those issues following this consultation exercise. Addressing the control issues may require certain amendments to the Act. While this paper does not address any of the control issues, the current situation under the Rules with regard to derivatives and options will continue to apply i.e. where a person acquires control of voting rights by means of a derivative or an option, such voting rights will be aggregable for the purposes of Rule 9. The proposed new Rules are set out in Annexe 1 while the proposed new Notes are set out in Annexe 2. The Panel is inviting comments on this consultation paper. The Panel would also welcome any views which parties may have on whether implementation of the proposals set out in 5

6 this paper should be delayed for a specified period to enable market participants to make any necessary adjustments to their dealing and reporting systems. Comments should reach the Panel by 30 September 2008 and should be sent in writing to: Irish Takeover Panel Lower Ground Floor 76 Merrion Square Dublin 2 FAX: Alternatively, comments may be sent by to: takeoverpanel@eircom.net 6

7 B. Amendments to Part A of the Rules 1. Definitions in Rules 2.1 and Dealing As noted above, it is proposed to introduce a definition of dealing into the Rules for the first time. Such a definition is necessary in order to set out the actions which will trigger an obligation to make a disclosure under Rule 8.1, 8.2 or 8.3. The new definition will identify such actions by reference to six specific examples (set out in sub-paragraphs (i) to (vi) of Rule 2.1) and one general provision (set out in sub-paragraph (vii) of Rule 2.1) referring to any other actions which would result in a change in the number of securities in respect of which a person has either a long or a short position. Rule 2.1(a) will provide that the term dealing, in relation to relevant securities, includes the following: (i) the acquisition or disposal of such securities or of the right (whether absolute or conditional) to exercise or to control the exercise of the voting rights (if any) attaching to such securities; (ii) the taking, granting, acquisition, disposal, entering into, closing out, termination, exercise (by either party) or variation of an option (including a traded option contract) in respect of any such securities; (iii) subscribing or agreeing to subscribe for such securities; (iv) the exercise of conversion or subscription rights conferred by any security or any other instrument, whether in respect of new or existing relevant securities; (v) the acquisition of, disposal of, entering into, closing out, exercise (by either party) of any rights under or variation of, a derivative referenced, directly or indirectly, to such securities; (vi) entering into, terminating or varying the terms of any agreement to purchase or sell such securities; and (vii) any action (not included in any of the above sub-paragraphs) which results or may result, in an increase or decrease in the number of such securities in which a person is interested or in respect of which he or she has a short position;. A number of points may be made about this definition. Firstly, it is broad enough to cover dealings by persons in derivatives (sub-paragraph (v)) or options (sub-paragraph (ii)). For the reasons set out in the Introduction, the Panel is of the view that the disclosure of such dealings are necessary. Secondly, the definition of dealing includes subscribing or agreeing to subscribe for relevant securities (sub-paragraph (iii)) and entering into an agreement to purchase or sell relevant securities (sub-paragraph (vi)). The Panel believes that the disclosure of this information will be relevant to a proper understanding of a person s dealing activities and, accordingly, should be disclosed. 7

8 Thirdly, the borrowing of securities pursuant to a stock borrowing and lending transaction and the purchase of securities pursuant to a sale and repurchase ( repo ) transaction involve a transfer of title to the borrower and purchaser respectively. Such a borrowing or purchase thus involves a dealing under paragraph (i) of the definition of dealing. A new Note 5 on Rule 2.1 confirms this point. Finally, the definition includes not just interests in relevant securities (i.e. long positions) but also short positions. It is important to note, however, that the disclosure of such short positions will be required (pursuant to Rule 8.3 described below at paragraph 5 in section C) only where a person has an aggregate gross long position of 1% or more in respect of any class of relevant securities of the company in question. 1.2 Derivative The term derivative is currently defined in Rule 2.1(a) as including any financial product the value of which in whole or in part is determined directly or indirectly by reference to the price of an underlying security but which does not include the possibility of delivery of such underlying securities. This includes only cash-settled derivatives. In determining how broad a net to cast in terms of the derivative and option instruments to be disclosed, the Panel considered that as a broad principle disclosure should be required of products with a similar economic effect to a CFD in affording their holders a substantial degree of de facto control over the underlying shares. In seeking to define such products, however, the Panel was conscious of the need to strike an appropriate balance between conflicting concerns. On the one hand, the definition should be sufficiently clear and precise to ensure that practitioners, compliance officers and market participants would be aware of their obligations under the Rules. On the other hand, the definition should not be so technical and specific that persons would be encouraged to develop products specifically to circumvent the disclosure requirements. The Panel concluded that the definition should be a broad one including both cash-settled derivatives and physically-settled derivatives. This brings the definition into line with the definition of interest in a relevant security in the new Rule 2.7(a) which includes both types of derivatives. Rule 2.7(b)(i)(2) and (3) will capture cash-settled derivatives while physically-settled derivatives will be caught under 2.7(b)(i)(4) and (5). This broad definition of derivative will capture a wide array of products such as CFDs, options, spread bets etc. It will also capture certain products such as derivatives referenced to a basket or index of securities which are not connected with an offer or potential offer. The disclosure of dealings in these products would not be necessary to allow shareholders contextualise the share price of the offeror or offeree. Persons dealing in such derivatives may apply to the Panel for derogations from the relevant disclosure rules. A new Note 6 on Rule 2.1 will be inserted to that effect. It will also indicate that a derivative which is referenced to a basket or index of securities will not normally be considered by the Panel to be connected with an offer if at the time of the dealing the relevant securities in the basket or index represent less than 1% of the class in issue and, in addition, less than 20% of the value of the securities in the basket or index. 1.3 Interest and Interested A definition of interest and interested in relation to relevant securities is being introduced for the first time into the Rules. This concept relates primarily to Rules 2.5, 4, 8, 16, 17.1(b), 20.1, 24 and Rule 2.1(a) will provide that interest and interested in relation to relevant securities will have the meaning assigned to them by Rule 2.7 of Part A which is discussed in paragraph 2 below. 1.4 Recognised Intermediary The Rules will introduce the term recognised intermediary which is defined as: 8

9 that part of the trading operations of a bank or other financial institution which has been recognised by the Panel as a recognised intermediary for the purposes of these Rules, has been notified in writing of that fact by the Panel and has not been notified by the Panel of the withdrawal of such recognition. Such an intermediary benefits from a dispensation from the requirement under Rule 8.3(a) to (d) that a person interested in 1% or more of any class of relevant securities disclose publicly dealings in relevant securities during an offer period. However, it is important to note that this status is relevant only to the extent that the intermediary is acting in a client-serving capacity. A new Note 11(c) on Rule 2.1 will confirm this point. Therefore, dealings by an intermediary which is not acting in a client-serving capacity will not benefit from these dispensations. As referred to in a new Note 11(a) on Rule 2.1, a financial institution seeking recognition must apply to the Panel to be granted recognised intermediary status. Applicants which have been granted recognised intermediary status by The Panel on Takeovers and Mergers in the UK will normally be granted corresponding status by the Panel. Applicants that satisfy the criteria set out in Note 11(f) on Rule 2.1 may be granted recognised intermediary status. These criteria are similar to those applied by the UK Panel with the exception that the entity must be authorised by the Financial Regulator with permission to deal as principal in Irish equities or in derivatives or options referenced to or in respect of such equities. A new Note 11(e) on Rule 2.1 will point out that where a recognised intermediary is an exempt market-maker under the Rules, or forms part of such a market-maker, the entity will lose its recognised intermediary status if it loses its exempt market-maker status. 1.5 Relevant Securities The term relevant securities is currently defined in Rule 8.9. It is proposed to replace the existing definition with a definition of the term in Rule 2.1 as follows: relevant securities means, in relation to an offer: (i) (ii) (iii) (iv) securities of the offeree which are the subject of the offer or which confer voting rights; equity share capital of the offeree or the offeror; securities of the offeror which confer on their holders substantially the same rights as are conferred by any securities to be issued by the offeror as consideration under the offer; and securities or any other instruments of the offeree or the offeror conferring on their holders rights to convert into or subscribe for new securities of any of the foregoing categories. The first three paragraphs (i) to (iii) are identical to paragraphs (a) to (c) in the current definition in Rule 8.9. The fourth, paragraph (iv), extends the existing paragraph (d) of the definition which is restricted to securities of the offeree or offeror conferring rights to convert into or subscribe for securities in the first three categories of securities. Paragraph (iv) includes any other instruments of the offeree or offeror conferring rights to convert into or subscribe for securities in the first three categories of securities. As a new Note 13 on Rule 2.1 indicates, this reference to other instruments is intended to capture rights to convert into or to subscribe for new securities of an offeree or an offeror where the 9

10 rights are, for example, contained within a bilateral agreement with an offeree or an offeror. An example of such an instrument would be an employee share option plan. Such rights will be deemed to be relevant securities. It is also proposed that Note 13 to remind parties that Rule 2.7(e) of Part A provides that a person interested in securities or other instruments falling under paragraph (iv) of the definition of relevant securities is deemed to be interested in any new shares arising from the exercise of such rights only when the rights are exercised or the person acquires the new shares. This will be discussed further at paragraph below. The present paragraph (e) of the definition of relevant securities in Rule 8.9 which refers to options (included traded options) in respect of any of the foregoing securities and derivatives referenced to any of the foregoing securities will be deleted. Derivatives and options (other than options to subscribe for new securities) will no longer comprise relevant securities. However, they will fall within the definition of interest in a relevant security and the relevant actions in relation to such derivatives and options will fall within the definition of dealing. It is important to note that the four categories of relevant securities in the proposed definition are not mutually exclusive. For example, ordinary shares in the offeree would fall within both paragraphs (i) and (ii). Furthermore, as a new Note 13 on Rule 2.1 explains, these categories are not synonymous with classes of relevant securities. In determining whether a disclosure obligation exists for the purpose of Rule 8.3, a person s interests are aggregated by class of relevant security. A number of different classes of relevant security may exist within each of the four categories of relevant security. For example, ordinary shares and preference shares in an offeree are separate classes, yet they both fall within paragraph (i) of the definition of relevant securities. Rule 2.7(c) provides that the number of relevant securities of a particular class in which a person is deemed to be interested will be the gross number. 1.6 Regulatory Information Service A definition of Regulatory Information Service is being inserted into Rule 2.1(a) of Part A of the Rules. The latter will permit parties making announcements under the Rules to use one of a number of Regulatory Information Services specified by the Irish Stock Exchange or by the Panel. 1.7 Associate The current definition of associate in Rule 2.2 includes in paragraph (i) a reference to a person who owns or controls, alone or in concert with others, 5% or more of any class of relevant securities (as defined in Rule 8.9) of the offeror or offeree. A change is proposed to this definition. The reference will be to a person who is interested rather than owns or controls the securities. This is consistent with the definitional changes explained above. 2. Rule Interests in Relevant Securities This is one of the most significant changes proposed. Rule 2.7(a)(i) of Part A provides that a person shall be deemed to have an interest, or to be interested in a relevant security only if he or she has a long position in the relevant security. The emphasis is on long positions, because as explained in the Introduction, it is in respect of such positions that the disclosure of de facto control and influence becomes relevant. 10

11 2.1.1 Long Position Rule 2.7(b)(i) describes the circumstances in which a person will be deemed to have a long interest in a relevant security. These are: if he or she: (1) owns that security; (2) will be economically advantaged if the price of that security increases; (3) will be economically disadvantaged if the price of that security decreases; (4) has the right or option to acquire that security or to call for its delivery; (5) is under an obligation to take delivery of that security; or (6) has the right to exercise or control the exercise of the voting rights (if any) attaching to that security, irrespective of: (A) how any such ownership, advantage, disadvantage, right, option or obligation arises and including, for the avoidance of doubt and without limitation, where it arises by virtue of an agreement to purchase, option or derivative; and (B) whether any such ownership, advantage, disadvantage, right, option or obligation is absolute or conditional and, where applicable, whether it is in the money or otherwise; provided that a person who has received an irrevocable commitment to accept an offer (or to procure that another person accept an offer) shall not, by virtue only of sub-paragraph (4) or (5) above, be treated as having an interest in the relevant securities that are the subject of the irrevocable commitment. Certain points should be noted. Firstly, a person will be deemed to have a long interest in an out of the money option. While such a person may not be able to exert any influence or control over relevant securities if the counterparty does not hold such securities as a hedge, disclosure of all derivatives and options will be necessary in order to make the disclosure regime as a whole viable. Secondly, the conditional nature of the interest is not relevant for the purpose of the definition. Thus a person who is party to an agreement or arrangement as a result of which they will, or might be expected to, acquire such an interest will be deemed to have an interest. This ensures, for example, that the disclosure rule may not be circumvented by a person artificially decreasing his or her interests to below the threshold before midnight with a right to renew those interests immediately afterwards (ie bed-and-breakfasting ). Finally, although it is proposed that there will be substantial disclosure (for example, in the Rule 2.5 announcement) of the details of all relevant securities of the offeree in respect of which the offeror or any of its associates has received irrevocable commitments, an irrevocable commitment that relates only to acceptance of an offer or voting in favour of a takeover scheme will normally not in itself constitute an interest in the relevant securities which are the subject of that commitment Short Position Rule 2.7(a)(ii) provides that, where a person has only a short position in a relevant security, he or she will be deemed not to have an interest in that security. However, as noted below at paragraph 5 in section C, a person who incurs a disclosure obligation 11

12 under Rule 8.1 or 8.3 will be required to disclose any short positions which they hold in respect of the relevant securities of that company. Rule 2.7(b)(ii) describes the circumstances in which a person will be deemed to have a short position in a relevant security. These are: if he or she: (1) will be economically advantaged if the price of that security decreases; (2) will be economically disadvantaged if the price of that security increases; (3) has the right or option to dispose of that security or to put it to another person; (4) is under an obligation to deliver that security to another person; or (5) is under an obligation either to permit another person to exercise the voting rights (if any) attaching to that security or to procure that such voting rights are exercised in accordance with the directions of another person, irrespective of: (A) how any such advantage, disadvantage, right, option or obligation arises and including, for the avoidance of doubt and without limitation, where it arises by virtue of an agreement to sell, option or derivative; and (B) whether any such advantage, disadvantage, right, option or obligation is absolute or conditional and, where applicable, whether it is in the money or otherwise Interests of Two or More Persons Upon the introduction of the proposed new definition of interest in a relevant security and the wider disclosure regime, disclosures of interests may refer to relevant securities which add up to in excess of 100% of the class of relevant securities. For example, where a person enters into a long option agreement referenced to relevant securities and the counterparty hedges its position by purchasing an equivalent number of relevant securities, both persons will be treated as interested in relevant securities of that class. This is an unavoidable consequence of the new disclosure regime. A new Note 1 will be added to Rule 2.7 to indicate this point. It will provide: As a result of the way in which interests in relevant securities are categorised, two or more persons may be deemed to be interested in the same securities. For example, where a shareholder grants a call option to another person, the shareholder will be interested in the shares the subject of the option as a result of sub-paragraph (1) of the types of interests in relevant securities specified in paragraph (b)(i), and the option holder will be interested in those shares as a result of sub-paragraph (4). As noted above at paragraph 1.4, recognised intermediaries acting in a client-serving capacity will benefit from the exemption from disclosure under Rule 8.3. This is likely to reduce the instances of multiple disclosure Proxies and Corporate Representatives Neither a person appointed to act as a proxy to vote at a specified general or class meeting of the company nor a corporate representative authorised to act at a general or 12

13 class meeting(s) will be deemed to be interested in the relevant securities provided that person does not himself control, or direct the exercise of the voting rights attached to the relevant securities. Such a person is acting merely as an agent for the ultimate controller of the voting rights. Note 2 on Rule 2.7 will confirm this point Security Interests The taking of security over relevant securities by equitable mortgage by a bank in the normal course of its business is unlikely to be treated as an acquisition of an interest in those securities provided the bank is not entitled to appropriate the relevant securities into its own name or to control exercise of the voting rights of those securities. A new Note 3 on Rule 2.7 is being added to this effect Gross Interests The obligation to disclose dealings in relevant securities during an offer period under the amended Rule 8.3(a) will be triggered where a person has an interest in 1% or more of any class of relevant securities of the offeree or the offeror (in the case of a securities exchange offer only). In establishing whether this obligation is triggered, what will be relevant will be a person s gross interest. For example, a person who has a 3% long position and a 3.5% short position in respect of the same class of relevant securities will be required to disclose pursuant to Rule 8.3. Such a person controls 3% of the class of relevant securities even though his or her net economic position in respect of the securities is 0.5% short. Furthermore, if only the net position required disclosure, a person could avoid disclosing long positions by taking out significantly out of the money short positions. Thus Rule 2.7(c)(i) will provide that the number of relevant securities of any class in which a person shall be deemed to have an interest will be the gross number resulting from the aggregation of the number of relevant securities falling within each of subparagraphs (1) to (6) of Rule 2.7(b)(i). In doing this calculation, relevant securities of the class concerned should be counted only once. Thus, where a person s interest in relevant securities of that class falls within more than one of the sub-paragraphs in Rule 2.7(b)(i), that person will be deemed by Rule 2.7(c)(ii) to be interested in the number disclosed by the sub-paragraph which discloses the highest number of such securities. Rule 2.7(c)(iii) will prohibit a person from netting off offsetting positions in any class of relevant securities unless Panel consent has been obtained. Note 6 on Rule 2.7 will explain that Panel consent will not normally be given unless the offsetting positions are in respect of the same class of relevant security and the same investment product, the terms of the offsetting positions are the same (excepting the number of securities) and the counterparty to those positions is the same in each case. In respect of the latter, the Panel will require the counterparties to be the same as otherwise the influence of the investor with the counterparty to his or her long position would not be diminished by the holding of a short position with another counterparty. Where offsetting is allowed, the investor will not have a disclosure requirement under Rule 8.3 until there is a net long position of 1% or more. The investor s position would be analogous to a purchaser who offsets purchases and sales in determining whether he or she has a physical holding of 1% or more of the relevant class. Rule 2.7(c) will thus state as follows: (i) The number of relevant securities of any class in which a person shall be deemed to have an interest is, subject to sub-paragraphs (ii) and (iii), the gross number resulting 13

14 from the aggregation of the number of relevant securities of that class falling within each of sub-paragraphs (1) to (6) of paragraph (b)(i), without deduction of short positions. (ii) If the interest of a person in relevant securities of any class falls within more than one sub-paragraph of paragraph (b)(i), he or she shall be deemed to be interested in the number of relevant securities of that class disclosed by whichever of those subparagraphs discloses the highest number of such securities. (iii) Offsetting positions in respect of any class of relevant securities may not be netted off against each other except with the consent of the Panel Number of Relevant Securities Concerned The Panel is proposing to introduce a new Rule 2.7(d) addressing certain issues in relation to the number of securities to which an agreement to purchase, option or derivative relates. Firstly, where the number of securities in which a person is interested is variable, unless the Panel determines otherwise he or she should normally be treated as interested in the maximum possible number of securities concerned. Secondly, where a person enters into a derivative by reference to the price of a number of securities, but subject to a multiplying factor, unless the Panel determines otherwise that person will be deemed to be interested in the number of relevant securities represented by his gross economic exposure. For example, if a person enters into a derivative referenced to 500 shares but agrees with his counterparty that changes in the price of those shares will be multiplied by a factor of two, the number of shares in which the person will be deemed to be interested is 1,000, since that is the gross number of shares to which he or she has economic exposure. Thirdly, where a person enters into a derivative that is not referenced to a particular number of relevant securities, unless the Panel determines otherwise that person will be deemed to be interested in the gross number of securities to which he or she has long economic exposure. For example, if a person enters into a spread bet in relation to shares in a company, pursuant to which the counterparty will pay him or her 10 for each cent by which the market price of the shares in that company rises, the number of shares in which that person will be deemed to be interested is 1,000 (i.e. 10 divided by 1 cent). Rule 2.7(d) will thus state as follows: (i) Where a person is interested in relevant securities by virtue of an agreement to purchase, an option or a derivative but the number of those relevant securities is not fixed, unless the Panel determines otherwise in any particular case he or she shall be deemed to be interested in the maximum possible number of those securities. (ii) Where a person is interested in relevant securities by virtue of a derivative and the value of the derivative is determined by reference to the price of a number of such relevant securities multiplied by a particular factor, unless the Panel determines otherwise in any particular case he or she shall be deemed to be interested in the number of reference securities multiplied by that factor. (iii) Where a person is interested in relevant securities by virtue of a derivative but the derivative is not referenced to any stated number (or maximum number) of those relevant securities, unless the Panel determines otherwise in any particular case he or she shall be deemed to be interested in the gross number of those securities to changes in the price of which he or she has, or may have, economic exposure. 14

15 2.1.8 New Shares Under paragraph (iv) of the definition of relevant securities in Rule 2.1, securities or other instruments of the offeree or the offeror conferring on their holders rights to convert into or to subscribe for new securities of any of the other categories of relevant securities are themselves a separate category of relevant security. However, the entitlement to such convertible securities or rights to subscribe will not, of itself, constitute an interest in the new securities. Such an interest will arise only upon conversion or exercise. Rule 2.7(e) will thus state: Where a person is interested in securities or other instruments conferring rights to convert into or to subscribe for new shares of a class of relevant securities, he or she shall be deemed not to be interested in any new shares that may be issued upon the exercise of those rights. The acquisition by that person of new shares when they are issued upon the exercise of those conversion or subscription rights shall be deemed to be an acquisition of an interest in the new shares Acquisitions of Interests in Relevant Securities Because of the changes proposed to the definitions in Rule 2.1, Rule 2.7(f) clarifies the meaning of acquiring an interest in relevant securities under the Rules. It will state as follows: References to a person acquiring an interest in relevant securities shall be construed to include any dealing or other transaction that results in an increase in the number of relevant securities in which that person is deemed to be interested. 15

16 C. Amendments to Part B of the Rules 1. Rule 2.5 Announcement of a Firm Intention to Make an Offer Contents of the Announcement Rule 2.5(b) sets out the information which must be included in the announcement of a firm intention to make an offer. At present, sub-paragraph (iii) obliges the offeror to include in the announcement details of certain holdings of securities in the offeree owned or controlled by the offeror or in respect of which the offeror has received an irrevocable commitment or holds an option to acquire. Holdings of securities in the offeree owned or controlled by a concert party of the offeror or holdings in respect of which a concert party of the offeror holds an option to acquire are also included. Sub-paragraphs (iv) and (v) provide that the announcement should include details of any options to subscribe for new securities of the offeree and details of any outstanding derivatives referenced to any securities of the offeree held by the offeror or any concert party of the offeror. It is proposed that these sub-paragraphs be deleted and replaced with two subparagraphs which take account of the proposed new definitions of relevant security and interest in a relevant security. Thus, the proposed new sub-paragraph (iii) will require details of all relevant securities of the offeree in which the offeror or any person acting in concert with the offeror is interested to be disclosed in the Rule 2.5 announcement while the proposed new sub-paragraph (iv) will require disclosure of details of all relevant securities of the offeree in respect of which the offeror has received an irrevocable commitment or a letter of intent. Irrevocable commitments or letters of intent received by any of the offeror s associates will also require disclosure. It is proposed that the announcement should set out details of the relevant securities of the offeree in which the offeror and its concert parties are interested or in which they have a short position. Rule 2.5(b) will thus contain the following two sub-paragraphs. (iii) details of all relevant securities of the offeree in which the offeror or any person acting in concert with the offeror is interested (directly or indirectly), in each case specifying the nature of the interests in accordance with the applicable provisions of Rule 8.6(a); and details of all short positions of each such person in the classes of relevant securities concerned in accordance with the applicable provisions of that rule; (iv) details of all relevant securities of the offeree in respect of which the offeror or any of its associates has received an irrevocable commitment or a letter of intent, including, in the case of an irrevocable commitment, the circumstances, if any, in which it will cease to be binding. As a consequence of the replacement of the three sub-paragraphs with two, the current sub-paragraphs (vi) to (xi) will be renumbered as sub-paragraphs (v) to (x) respectively. At present Rule 2.5(b)(viii) provides that the announcement must include a statement that holders of 1% or more of any class of relevant securities of the offeror or offeree may have disclosure obligations under Rule 8.3. It is proposed that this will be amended to refer to the disclosure obligations of persons interested (directly or indirectly) in 1% or more of any class of relevant securities of the offeror or offeree. In keeping with the proposed renumbering, this will be set out in sub-paragraph (vii). 16

17 The proviso at the end of Rule 2.5(b) is also being amended to bring it into line with the new concept of interest in a relevant security. The proviso in Rule 2.4(b) will therefore be amended as follows: provided that if, for reasons of secrecy, it would not be considered prudent for an offeror to make enquiries for the purpose of including in such an announcement details of any relevant securities of the offeree in which persons controlling, controlled by or under the same control as one of its advisers are interested or have short positions, the offeror shall obtain the relevant details and report them to the Panel promptly following the announcement. If the Panel considers the interests or short positions concerned to be significant, it may require the offeror to make a further announcement. 2. Mode of Announcement The current Rule 2.9 provides that every announcement made pursuant to the Rules should be made to the Stock Exchange and the Panel. It is proposed to amend the Rule so that announcements will now be made to a Regulatory Information Service rather than to the Stock Exchange. As noted above at paragraph 1.6 in section B, a definition of Regulatory Information Service is being inserted into Rule 2.1(a) of Part A of the Rules. This will permit parties making announcements under the Rules to use one of a number of Regulatory Information Services specified by the Irish Stock Exchange or by the Panel. 3. Rule 2.10 Announcement of Numbers of Relevant Securities in Issue 3.1 Obligation to Announce In order to comply with the disclosure obligations proposed under Rule 8, persons will need to be aware of the exact number of relevant securities which an offeree or (in the case of a securities exchange offer) an offeror has in issue. Market sources may be inaccurate or out of date. To ensure that accurate and current information is available, the Panel proposes to impose an obligation on the offeree to announce details of all classes of relevant securities issued by the offeree, together with the number of such securities in issue. This announcement should be made by 9.00 a.m. on the business day following the commencement of the offer period. Unless it has stated that its offer is or is likely to be in cash, an offeror will be required to announce the same details relating to its relevant securities by 9.00 a.m. on the business day following any announcement identifying it as an offeror or potential offeror. To ensure that this information is kept up to date, the offeree and (where applicable) the offeror will be obliged to update this information if any subsequent changes occur during the offer period. The obligation imposed on the offeror and offeree relates only to securities issued by the offeror and offeree respectively. There may of course be other classes of relevant securities such as derivatives or options that are not issued by either company and need not be included in the Rule 2.10 announcement. Rule 2.10 will thus state as follows: 2.10 ANNOUNCEMENT OF NUMBERS OF RELEVANT SECURITIES IN ISSUE (a) When an offer period commences, the offeree shall announce in accordance with Rule 2.9 as soon as practicable and, in any event, by no later than 9.00 a.m. 17

18 on the next following business day, details of all classes of relevant securities issued by the offeree, together with the number of such securities in issue. An offeror or potential named offeror shall also announce in accordance with Rule 2.9 the same details relating to its relevant securities as soon as practicable and, in any event, by no later than 9.00 a.m. on the business day next following any announcement identifying it as an offeror or potential offeror, unless it has stated that its offer is or is likely to be solely in cash. (b) If the information included in any announcement made under paragraph (a) changes during the offer period concerned, the offeree or the offeror, as appropriate, shall make a revised announcement as soon as practicable and, in any event, by no later than 9.00 a.m. on the business day next following such change. (c) Every announcement referred to in this Rule shall include, where applicable, the International Securities Identification Number for each relevant security of the company making that announcement. 3.2 Options to Subscribe One of the classes of relevant securities to be included in the Rule 2.10 announcement will be rights granted by the offeree to subscribe for new shares which on issue will themselves constitute relevant securities. This class will fall within category (iv) of the proposed new definition of relevant security. A proposed new Note 1 on Rule 2.10 will indicate that subscription options granted under a company s incentive share option plan will normally be considered by the Panel as belonging to the same class of relevant securities. However, if there is more than one share option plan, the options granted under each plan will normally be regarded as a separate class of relevant securities. Note 1 to Rule 2.10 will state as follows: The classes of relevant securities to be detailed by an offeree in the announcement include, within category (iv) of the definition of relevant securities, rights granted by the offeree to subscribe for new shares which on issue will themselves constitute relevant securities of the offeree. This will apply to subscription options granted under a company s incentive share option plan. The Panel will normally regard options granted under such a plan as belonging to the same class of relevant securities. Where a company has more than one share option plan, the options granted under each plan will normally be regarded as a separate class of relevant securities. 3.3 Treasury Shares Where shares are redeemed, the company may decide to retain them as treasury shares. By law, the voting rights attaching to these shares are suspended for as long as the shares are in treasury. The Panel believes that these shares may thus be ignored for the purposes of the Rule 2.10 announcement. It is only shares held and in issue outside treasury that are relevant for the purposes of the announcement. A new Note 2 to Rule 2.10 will confirm this. 4. Rule 4 - Restrictions on Dealings in Securities Four amendments are proposed to Rule 4 stemming from the proposed new concept of interest in a relevant security in Rule 2.7 of Part A. At present, Rule 4.1(d) exempts from the restrictions in Rule 4 any arrangements made by an offeror with a person acting in concert with it whereby relevant securities of the 18

19 offeree are acquired during the relevant period by the person acting in concert on the basis that the offeror will bear all the risks and receive all the benefits. The relevant period in this context commences when the person first has reason to suppose that an offer, or an approach with a view to an offer, is contemplated and ends upon the earlier of the announcement of an offer or approach or the termination of the discussions. The Rule also requires the Rule 2.5 announcement to set out details of any such arrangements including dealings in and holdings of relevant securities resulting therefrom. An amendment is proposed to Rule 4.1(d) to apply the Rule to arrangements concerning acquisitions of interests in relevant securities rather than merely acquisitions of relevant securities. Rule 4.2(a) prohibits an offeror or any party acting in concert with it from selling any relevant securities of the offeree during an offer period except with Panel consent and following a prior announcement of the sales. Following such an announcement, neither the offeror or any such party may acquire any relevant securities of the offeree during the offer period or revise the offer except with Panel consent. An amendment is proposed to Rule 4.2(a) to apply the Rule to interests in relevant securities rather than relevant securities. Rule 4.2(d) prohibits directors of and financial advisers to an offeror or offeree who own relevant securities of the company concerned from dealing in such securities during the offer period in a manner inconsistent with any advice which they have given to their shareholders save where Panel consent has been obtained. An amendment is proposed to this Rule to apply the restriction to directors or advisers who are interested in relevant securities. Rule 4.4 prohibits, without Panel consent, certain associates of the offeree from taking certain actions during the offer period. Rule 4.4(a) provides that the prohibition includes acquiring relevant securities of the offeree or dealing in options in respect of, or derivatives referenced to such securities for their own account or on behalf of discretionary clients. An amendment is proposed to prohibit such persons acquiring any interest in relevant securities for their own account or on behalf of discretionary clients. 5. Rule 8 Disclosures 5.1 Rule 8.1 and Dealings by Parties and by Associates Rules 8.1(a) and (b) set out the disclosure requirements for an offeror or offeree and their associates dealing for themselves or discretionary clients. It is proposed to amend these Rules to make the disclosure obligations subject to a new Rule 8.9 (dealings not required to be disclosed) which provides that disclosure of dealings in the relevant securities of the offeror is not required in a cash offer. This is discussed further at paragraph 6 below. By virtue of proposed amendments to Rule 8.6 (details to be included in disclosures), where a person has an obligation to disclose dealings publicly under Rule 8.1, details of all interests in relevant securities will also have to be disclosed together with details of all short positions. Rule 8.2 set out the disclosure requirements for an offeror or offeree and their associates dealing for non-discretionary clients. As with Rule 8.1, it is proposed to amend this paragraph to make the obligation subject to Rule

20 5.2 Rule Dealings by Persons with Interests in Relevant Securities Representing 1% or More Disclosure Obligation Rule 8.3(a) currently requires persons who own or control 1% or more of any class of relevant securities of the offeree or offeror, or as a result of any transaction will own or control 1% or more of any class, to disclose all dealings during an offer period in securities of that company of that class or in options in respect of or in derivatives referenced to securities of that company or class. For the purposes of calculating the 1%, options and derivatives are expressly excluded. It is proposed, subject to Rule 8.9, to impose under Rule 8.3 a requirement to disclose all dealings in any relevant securities where a person is interested, or will be interested as a result of a transaction, in 1% or more of any class of relevant securities of the offeree or the offeror. This information is required to be disclosured as such dealings may be significant to the outcome of the offer. Short positions are not included in the calculation of this 1% as it is only persons with long positions who are likely to be able to exercise a significant degree of de facto control over the shares to which the derivative is referenced or which are subject of the option. Clearly, the disclosure requirement will continue to apply to persons who own or control 1% or more of any class of relevant securities as they will be deemed to have a long position in the securities pursuant to Rule 2.7(b). It is proposed that, when the 1% threshold has been reached, all dealings in relevant securities should then be disclosed. This will require disclosure of short positions also. The Panel believes that this will provide the market with a better understanding of such persons dealings in relevant securities. It is important to note that, in calculating the 1% threshold, persons interests should be aggregated by class of relevant security. As noted above, the class of relevant security is not necessarily synonymous with the categories of relevant securities set out in the definition of relevant securities in Rule 2.1(a) of Part A of the Rules. As set out in Rule 2.7(c) of Part A, the relevant securities of any class in which a person will be deemed to have an interest is, subject to sub-paragraphs (ii) and (iii) of that Rule, the gross number resulting from the aggregation of relevant securities of that class falling within each of sub-paragraphs (1) to (6) of Rule 2.7(b)(i) (which defines a long position) without deducting short positions. Note 4 on Rule 8.3 provides an example of how the 1% threshold should be calculated. It states: By way of example, a person holding 0.5% of the ordinary shares and 0.3% of the convertible bonds of an offeree and who enters into a long contract for differences referenced to 0.4% of the ordinary shares would not have to disclose that dealing as he or she would have a long position in respect of only 0.9% of one class of relevant security, i.e. ordinary shares, and 0.3% of another class of relevant security, i.e. convertible bonds. If that person then enters into a call option over a further 0.5% of the ordinary shares, this would be disclosable as he or she would then have a long position in respect of 1.4% of the ordinary share class at that time. The holding of convertible bonds would then also have to be disclosed in accordance with Rule 8.6 of Part B. A person holding 0.9% of a convertible bond of an offeree and who then acquires 0.5% of another class of convertible bond of that offeree will not have to disclose the dealing as he or she would not have a long position in respect of 1% or more of any one class of relevant security. As noted above, in calculating a person s gross position to determine whether a disclosure obligation is triggered, short positions should not be deducted. For example, a 20